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THE AUTOMOTIVE DEALERSHIP INSTITUTE, INC.Arzu Algan, CFO/Dean of Education • Alan Algan, CEO/Executive Director
Keith Tuber, President/Director of Corporate Affairs
THE ENCYCLOPEDIA OF
FINANCE AND INSURANCE
MANAGEMENT®
First Edition
The Encyclopedia of Finance and Insurance Management is designed to provide authoritativeinformation about the subject covered. Information contained herein has been carefully compiledfrom the sources believed to be reliable, but the accuracy of the information cannot be guaranteed.The authors are not engaged in rendering legal, accounting and/or other professional services; ifsuch expert service is required the services of an appropriate professional should be sought.
The Automotive Dealership Institute, its staff and all the contributors to this work specificallydisclaim any corporate or personal liability, loss or risk incurred as a consequence of the use eitherdirectly or indirectly, of any information or advice given in this publication.
The regulations presented in The Encyclopedia of Finance and Insurance Management representthe current information available at the time of publication.The authors have made a good faitheffort to compile federal and some state regulations applicable to automotive dealership Finance andInsurance departments.
The Automotive Dealership Institute, the authors and contributing authors of this publicationmake no representation or warranty that the regulations excerpted or summarized herein constitute all of the state and federal regulationsapplicable to the in-dealership finance and insurance process. Reference should always be made tothe full text of all applicable regulations. Please visit www.gpoaccess.gov/index.html and click on Code of Federal Regulations under Executive Resources for the most up-to-date version.
Actual resolution of legal issues depends upon many factors, including variations of facts andapplicable laws.
It should be duly noted that some federal and state regulations may change and such changes mayrender a prior practice unacceptable, or may require ongoing alterations in methods of conducting business or in the forms required to documentthe transaction.
CO
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RIB
UT
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STHE AUTOMOTIVE DEALERSHIP INSTITUTEGlobal leader in educating the next generation of Finance and Insurance Managers.
The Encyclopedia of Finance and Insurance Management is published with the editorial advice of the faculty and the administration of the Automotive Dealership Institute.
Educational content: Arzu Algan, CFO/Dean of EducationContent co-ordination: Alan Algan, CEO/Executive DirectorExecutive Editor: Keith Tuber, President/Director of Corporate AffairsCopy Editor: Kristen ForceResearch Supervisor: Amber Grunwald,Vice President/Director of Operations
Additional advice is given by distinguished members of Northwood University, AFIP,Institute for Ethical Behavior, professional trade organizations, associations and other professionals.
Special thanks to the following people for their editorial contribution to this publication:
Prof. Robert W. Serum, Ph.D.Vice President, Academics and International ProgramsNorthwood University
David N. RobertsonExecutive DirectorThe Association of Finance & Insurance Professionals
John WalshPresident/CEOInstitute for Ethical Behavior
Gary Thomas Fagg, FSA, MAAAPresidentCreditRe Corporation
Thomas B. HudsonSenior PartnerHudson Cook, LLP
Timothy J. GillCFO/Director of OperationsAdvent Resources, Inc.
Bob ConnersPresident/CEO Saturn Auto Consultants Ltd., Canada
Patrick ColbertSenior Vice PresidentFirst Advantage CREDCO
Marguerite WatanabeAuto Finance Practice ManagerBenchmark Consulting International
Terrence J. O’LoughlinDirector of Compliance The Reynolds and Reynolds Company
Corporate contributors:
Reynolds & ReynoldsDealer TrackF&I Management & Technology MagazineCARLAW ®– Counselor Library.com, LLCNorthwood UniversityInstitute for Ethical BehaviorAssociation of Finance & Insurance ProfessionalsCreditRe CorporationAdvent Resources, Inc.First Advantage CREDCOBenchmark Consulting InternationalArizona Independent Auto Dealers Association
© 2006 - 2007By The Automotive Dealership Institute, Inc.
Copyright under International Copyright UnionAll rights reserved under Pan American andand Universal Copyright Conventionsby The Automotive Dealership Institute, Inc.
No part of this work may be reproduced or utilized in any form or by any means, electronic or mechanical,including photocopying, recording, scanning or any information storage and retrieval system, without permission in writing from the publisher.
Graphic design and page layout: Debra Thrash,Thrash Design, Costa Mesa, CaliforniaPrinting coordination and bookbinding: Roswell Book Binders, Phoenix,Arizona
Printed in U.S.A.
U.S. Library of Congress Catalog Number:TXU1271365International Standard Book Number (ISBN): 0-9786776-0-9ISBN-13: 978-0-9786776-0-2 International SAN Number 851-2481
TABLE OF CONTENTS
AUTOMOTIVE RETAIL OPERATING SYSTEM
DEALERSHIP ORGANIZATION AND DEVELOPMENTRunning a Dealership ................................................................................................................................................36Facilities and Services..................................................................................................................................................36Dealership Products ....................................................................................................................................................36
DEALERSHIP TRENDS Straight Sales System ..................................................................................................................................................36The T.O. Sales System ................................................................................................................................................36One-Price Sales System..............................................................................................................................................37
DEALERSHIP MANAGEMENT STRUCTUREDealer Principal..........................................................................................................................................................37General Manager ........................................................................................................................................................37General Sales Manager................................................................................................................................................37Business Manager ......................................................................................................................................................38Finance Director ........................................................................................................................................................38Finance and Insurance Manager..................................................................................................................................38Special Finance Manager ............................................................................................................................................39Sales Manager ............................................................................................................................................................39Desk Manager ............................................................................................................................................................39Internet Sales Consultant ............................................................................................................................................39Closer ........................................................................................................................................................................39Salesperson..................................................................................................................................................................40Greeter ......................................................................................................................................................................40
DEALERSHIP TERMINOLOGYDefinitions..................................................................................................................................................................41
DEALERSHIP SALES METHODOLOGYIntroduction to Sales ..................................................................................................................................................43Setting the Proper Sales Image....................................................................................................................................44Attitude in Sales..........................................................................................................................................................45Customer Interaction..................................................................................................................................................46Organization/Self Discipline ......................................................................................................................................47Who is the Boss? – The Customer..............................................................................................................................47
VEHICLE SALES TRANSACTION
SALES PROCESSThe Greeting/Welcome..............................................................................................................................................49Understanding Customer Needs ................................................................................................................................50Vehicle Presentation....................................................................................................................................................52Vehicle Demonstration/Trial Close ............................................................................................................................54Vehicle Appraisal ........................................................................................................................................................56Purchase Consultation/Negotiations ..........................................................................................................................57
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Finance and Insurance Department/Proper Introduction ............................................................................................59Delivery......................................................................................................................................................................60Follow-Up..................................................................................................................................................................63
NEW BUSINESS DEVELOPMENT Prospecting ................................................................................................................................................................64
LEASING
INTRODUCTION TO LEASINGIntroduction................................................................................................................................................................65Benefits of Leasing......................................................................................................................................................65
LEASING GLOSSARYLease Terminology ......................................................................................................................................................66
HOW LEASING WORKSLease Breakdown........................................................................................................................................................67Basic Lease Calculations..............................................................................................................................................68Dealer Installed Options ............................................................................................................................................69Mileage ......................................................................................................................................................................70Drive Offs ..................................................................................................................................................................70Advance Guidelines ....................................................................................................................................................70Lessee’s Obligations ....................................................................................................................................................71
FINANCE PRODUCTS
VEHICLE SERVICE CONTRACTBackground................................................................................................................................................................71Warranties ..................................................................................................................................................................72Factory Warranties ......................................................................................................................................................72Mechanical Breakdown Insurance ..............................................................................................................................72Vehicle Service Contracts (VSCs) ..............................................................................................................................73Vehicle Service Contract Coverage ............................................................................................................................77Common Vehicle Service Contract Provisions ............................................................................................................79Transferability..............................................................................................................................................................81Owner Responsibilities and Requirements..................................................................................................................81Vehicle Service Contract Cancellation ........................................................................................................................81Loss Management – Field Underwriting ....................................................................................................................82Extended Service Contract Benefits............................................................................................................................82
VEHICLE MAINTENANCE CAREOverview....................................................................................................................................................................83Vehicle Maintenance Care Benefits ............................................................................................................................83
Table of Contents
CREDIT INSURANCE & RELATED PRODUCTS
AN INTRODUCTION TO CREDIT-RELATED INSURANCEOverview....................................................................................................................................................................83A Brief History ..........................................................................................................................................................85
SINGLE PREMIUM CREDIT LIFE INSURANCE ON INSTALLMENT CREDITImportant Definitions..................................................................................................................................................89Installment Credit ......................................................................................................................................................89Insurance Coverage on Installment Credit ..................................................................................................................90Group or Individual Policies ......................................................................................................................................91Single and Joint Coverage............................................................................................................................................91Conditions of Eligibility..............................................................................................................................................91Exclusions ..................................................................................................................................................................92Contributory and Noncontributory Premiums ..........................................................................................................92Premium Calculations ................................................................................................................................................92Prima Facie Rates ......................................................................................................................................................92
SINGLE PREMIUM CREDIT DISABILITY INSURANCE ON INSTALLMENT CREDITImportant Definition ..................................................................................................................................................92Insurance Coverage on Installment Credit ..................................................................................................................92Conditions of Eligibility ............................................................................................................................................93Determination of Disability ........................................................................................................................................93Benefits Provided........................................................................................................................................................93Elimination Period ....................................................................................................................................................94Pre-Existing Condition Exclusion ..............................................................................................................................94Premium Rates ..........................................................................................................................................................95Claim Filing................................................................................................................................................................95
INVOLUNTARY UNEMPLOYMENT INSURANCE ON INSTALLMENT CREDITDefinition ..................................................................................................................................................................95Overview....................................................................................................................................................................96Policy Structure ..........................................................................................................................................................96Eligibility for Insurance ..............................................................................................................................................96The Insured Event......................................................................................................................................................96The Underlying Credit ..............................................................................................................................................97Markets and Marketing ..............................................................................................................................................97The Insurers................................................................................................................................................................98Underwriting Criteria ................................................................................................................................................98Term of Insurance ......................................................................................................................................................98Benefit Conditions ....................................................................................................................................................98Premium Rates ..........................................................................................................................................................99Premium Refunds ....................................................................................................................................................100Agent Licensing........................................................................................................................................................101Available States ........................................................................................................................................................101Advantages to the Producer ......................................................................................................................................101Reserves ..................................................................................................................................................................101
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GAPDefinitions................................................................................................................................................................102Overview..................................................................................................................................................................102Policy/Contractual Structure ....................................................................................................................................102Eligibility for Gap Waiver and Gap Waiver Insurance ..................................................................................................103The Insured Event ....................................................................................................................................................104The Underlying Credit ............................................................................................................................................104Markets and Marketing..............................................................................................................................................104The Insurers ..............................................................................................................................................................104Underwriting Criteria ..............................................................................................................................................104Term of Coverage......................................................................................................................................................105Benefit Conditions of Gap Waiver and Gap Waiver Insurance ....................................................................................105Rates ........................................................................................................................................................................105Financing of the Cost and Regulation Z ..................................................................................................................106Refunds....................................................................................................................................................................106Licensing ..................................................................................................................................................................106Available States ........................................................................................................................................................107Advantages to the Producer ......................................................................................................................................107Reserves....................................................................................................................................................................107
PRODUCERS OF CREDIT-RELATED INSURANCEBanks........................................................................................................................................................................107Credit Unions ..........................................................................................................................................................108Finance Companies ..................................................................................................................................................108Acceptance Corporations..........................................................................................................................................108Automobile, Mobile Home, and Recreational Vehicle Dealers....................................................................................109The Insurer-Producer Relationship............................................................................................................................109Abbreviations............................................................................................................................................................110
THE CASE FOR CREDIT-RELATED INSURANCEThe Need for Credit-Related Insurance....................................................................................................................110The Convenience of Credit-Related Insurance ........................................................................................................111The Cost of Credit-Related Insurance......................................................................................................................111Advantages to the Producer ......................................................................................................................................112Consumer Attitudes ..................................................................................................................................................112
OTHER CREDIT-RELATED INSURANCE PRODUCTS FOR INSTALLMENT CREDIT Net Payoff Life Insurance ..........................................................................................................................................113Level Life Gross and Net Payoff Coverage ................................................................................................................113Combination Products..............................................................................................................................................113Truncated Life and Disability Insurance ....................................................................................................................114Critical Period Disability Insurance ..........................................................................................................................114Creditor-Placed Programs ........................................................................................................................................114
PREMIUM RATESPrima Facie Rates ....................................................................................................................................................115Life Insurance Premium Formulas ............................................................................................................................116
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Disability Insurance Premium Formulas ....................................................................................................................116Involuntary Unemployment Insurance Premium Formulas ........................................................................................116Premium Refunds ....................................................................................................................................................116
OPERATIONSHome Office Operations ..........................................................................................................................................117Sales..........................................................................................................................................................................117Sales Administration..................................................................................................................................................118Agent Licensing........................................................................................................................................................119Premium Processing..................................................................................................................................................120Claim Administration................................................................................................................................................121Investments..............................................................................................................................................................124Policy Form Filing....................................................................................................................................................124
AUTOMOBILE INSURANCEThe Insurance Policy ................................................................................................................................................125Insurance Terminology..............................................................................................................................................125Types of Insurance ....................................................................................................................................................125Lender’s Insurance Interest ........................................................................................................................................126Summary..................................................................................................................................................................127
GPS SECURITY AND TRACKING SYSTEMSatellite Tracking/Location........................................................................................................................................127Benefits ....................................................................................................................................................................127
VEHICLE TRACKING/RECOVERY SYSTEM – LOJACKLojack ......................................................................................................................................................................127Company History......................................................................................................................................................128The Stolen Vehicle Recovery System........................................................................................................................128Lojack Full-Featured Alarm System ..........................................................................................................................128Lojack Security Enhancement System ......................................................................................................................128Lojack Guarantee......................................................................................................................................................129Lojack Guarantee Plus $5,000 ..................................................................................................................................129Lojack Benefits..........................................................................................................................................................129Frequently Asked Questions......................................................................................................................................129
SECURITY CODE MARKING SYSTEMGeneral Information..................................................................................................................................................130Benefits ....................................................................................................................................................................130
INTERIOR AND EXTERIOR PROTECTIONOverview..................................................................................................................................................................130Paint Sealent ............................................................................................................................................................130Fabric Sealent ..........................................................................................................................................................131Leather/Vinyl Sealent ..............................................................................................................................................131Interior and Exterior Protection Benefits..................................................................................................................131
Table of Contents
FINANCE SOFTWARE
THE REYNOLDS AND REYNOLDS COMPANY Company Profile ......................................................................................................................................................131Reynoldsystem..........................................................................................................................................................132
ADVENT RESOURCES, INC Company Profile ......................................................................................................................................................132Advent System..........................................................................................................................................................133Transactions Menu....................................................................................................................................................134Creating a Retail Deal ..............................................................................................................................................134Creating a Lease Deal ..............................................................................................................................................146Profit Builder Menu System......................................................................................................................................150
FINANCE AND INSURANCE – PRIME
THE F&I DEPARTMENT: A DEALERSHIP PROFIT CENTERThe F&I Department as a Profit Center ....................................................................................................................168
BASIC FINANCE DEFINITIONSFinance Definitions ..................................................................................................................................................168
F&I DEPARTMENT / F&I MANAGERF&I Department ......................................................................................................................................................169The Profit Center ....................................................................................................................................................170F&I Manager ............................................................................................................................................................171Finance Office Protocol............................................................................................................................................171F&I Manager and the Sales Department ....................................................................................................................172Business Office..........................................................................................................................................................173
FINANCE AND DEALERSHIP TERMS Finance Terms and Dealer Policies ............................................................................................................................173
INTEREST AND FINANCE CHARGE CALCULATIONSInterest......................................................................................................................................................................174Types of Finance Charges on Contracts ....................................................................................................................178Simple Interest..........................................................................................................................................................178Rule of 78’s ..............................................................................................................................................................179Finance Reserve ......................................................................................................................................................180
CREDIT AND PRIME LENDING
CREDIT APPLICATIONSThe Credit Application ............................................................................................................................................181
Table of Contents
CREDIT BUREAUSOverview..................................................................................................................................................................182Credit Report ..........................................................................................................................................................182
PRIME LENDING AND THE LOAN PROCESSPrime Lending..........................................................................................................................................................184Lending Guidelines and Criteria ..............................................................................................................................184The Loan Process......................................................................................................................................................185Funding....................................................................................................................................................................185Documentation Checklist ........................................................................................................................................186Getting Deals Approved ............................................................................................................................................186Dealing with Lenders................................................................................................................................................186
CREDIT UNIONSOverview..................................................................................................................................................................187Credit Union Direct Lending – CUDL....................................................................................................................187
LOAN STRUCTURINGFour C’s of Credit ....................................................................................................................................................189Structuring and Placing the Loan ..............................................................................................................................189
FINANCE AND INSURANCE – NON-PRIME
INTRODUCTION AND BENEFITS OF NON-PRIME FINANCEIntroduction..............................................................................................................................................................192Benefits of Non-prime Finance ................................................................................................................................192
NON-PRIME FINANCE TERMINOLOGYDefinitions................................................................................................................................................................193
NON-PRIME FINANCE GUIDELINESNon-Prime Deal Structure ........................................................................................................................................194Advance....................................................................................................................................................................194Amount Financed ....................................................................................................................................................195Loan to Value Ratio (LTV)........................................................................................................................................195Down Payment ........................................................................................................................................................195Interest Rate and Dealer Participation ......................................................................................................................196Acquisition Fee/Discount ........................................................................................................................................196Vehicle Requirements ..............................................................................................................................................196Loan Term and Mileage ............................................................................................................................................196Income ....................................................................................................................................................................196Budget......................................................................................................................................................................196Stability ....................................................................................................................................................................197Credit ......................................................................................................................................................................197Vehicle Insurance......................................................................................................................................................197Ineligible Applications ..............................................................................................................................................198Borrower ..................................................................................................................................................................198
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LOAN PROCESS AND FUNDINGLoan Process ............................................................................................................................................................199Required Documents................................................................................................................................................199Funding....................................................................................................................................................................199Documentation Checklist ..........................................................................................................................................200
SPECIAL FINANCESpecial Finance Department......................................................................................................................................200How to Set-Up A Successful Special Finance Department ........................................................................................201
CREDIT BUREAUS
OVERVIEWExperian, Equifax,Trans Union and First Advantage CREDCO ................................................................................204
EXPERIANCredit Profile Report................................................................................................................................................205
EQUIFAXCredit Profile Report................................................................................................................................................221
TRANS UNIONCredit Profile Report................................................................................................................................................224
FIRST ADVANTAGE CREDCOCredit Profile Report................................................................................................................................................230
F&I MENU SELLING PROCESS
F&I INTRODUCTIONCustody of the Customer..........................................................................................................................................239
CUSTOMER INTERVIEW PROCESSThe Interview Process ..............................................................................................................................................239Meet & Greet ..........................................................................................................................................................240Review and Confirm the Figures ..............................................................................................................................240Review Purchaser’s Statement and Credit Report ....................................................................................................240
F&I MENU PRESENTATIONThe Menu ................................................................................................................................................................241F&I Menu Presentation Steps ..................................................................................................................................241
CONTRACT DISCLOSURESDisclosures................................................................................................................................................................245Retail Installment Sales Contract Disclosures ............................................................................................................245
Table of Contents
OVERCOMING CUSTOMERS OBJECTIONS
HANDLING OBJECTIONS“I’m Not Interested in Hearing About any Products”................................................................................................246“I Can’t Afford Additional Protection” ......................................................................................................................247Putting the Cost in Perspective ................................................................................................................................247ESC vs. Manufacturer’s Warranty ..............................................................................................................................247ESC Value vs. Insurance Coverage ............................................................................................................................247ESC vs. My Personal Mechanic ................................................................................................................................24799.9% Close..............................................................................................................................................................248ESC:A No-Lose Option ..........................................................................................................................................248ESC: Cost vs. Coverage ............................................................................................................................................248“I Already Have Life Insurance.” ................................................................................................................................248“I am Not Interested in Disability Insurance”............................................................................................................249GAP vs.Vehicle Replacement Costs..........................................................................................................................249GPS Security Systems vs.Alarms ..............................................................................................................................249Anti-Theft System vs.Vehicle Replacement Costs ....................................................................................................249Appearance Package vs.Vehicle Trade-In Value ..........................................................................................................249
CREDIT UNION CONVERSIONSConvenience and Confidentiality..............................................................................................................................250Keep Your Line of Credit Available ..........................................................................................................................250Rate Difference ........................................................................................................................................................250Right to Offset ........................................................................................................................................................250ESC vs. Mechanical Breakdown Insurance................................................................................................................251
LAWS, RULES, REGULATIONS AND ETHICS
AN OVERVIEW OF TRUTH IN LENDING ACTRegulation Z............................................................................................................................................................252Advertising ..............................................................................................................................................................254Truth in Lending - Regulation Z – Published by the Board of Governors of the Federal Reserve System............................255Official Staff Commentary on Regulation Z ............................................................................................................256How to Advertise Consumer Credit & Lease Terms ..................................................................................................301
FINANCE CONTRACTRetail Installment Sales Contract ..............................................................................................................................306
CONSUMER LEASING ACTRegulation M ..........................................................................................................................................................317 Advertising Consumer Leases ....................................................................................................................................318Truth in Lending - Regulation M – Published by the Board of Governors of the Federal Reserve System................319Official Staff Commentary on Regulation M ............................................................................................................319FTC Manual – Advertising Consumer Leases ............................................................................................................339FRB Manual – Keys to Vehicle Leasing ....................................................................................................................341
Table of Contents
LEASE CONTRACTClosed-End Motor Vehicle Lease Contract................................................................................................................342
EQUAL CREDIT OPPORTUNITY ACTRegulation B............................................................................................................................................................352Equal Credit Opportunity Act - Regulation B – Published by the Board of Governors of the Federal Reserve System..........354Official Staff Commentary on Regulation B............................................................................................................354
FAIR CREDIT REPORTING ACTThe Fair Credit Reporting Act ..................................................................................................................................380Rules for Running Credit Reports ..........................................................................................................................413
THE CREDIT PRACTICES RULEFTC Manual – Complying with the Credit Practices Rule ......................................................................................414FTC Manual – Cosigning a Loan ..............................................................................................................................419
HOLDER IN DUE COURSE RULEPreservation of Consumers' Claims and Defenses......................................................................................................420
MAGNUSON-MOSS WARRANTY ACTOverview of the Magnuson-Moss Warranty Act ........................................................................................................422FTC Manual – A Businessperson’s Guide to Federal Warranty Law ..........................................................................425
USED CAR RULE / BUYERS GUIDEFTC Manual – A Dealer’s Guide to the Used Car Rule ............................................................................................438
CASH PURCHASESReporting Cash Payments of Over $10,000 - IRS FinCen 8300 ..............................................................................450
USA PATRIOT ACTWhat is the USA Patriot Act? ..................................................................................................................................458OFAC – The Office of Foreign Assets Control ..........................................................................................................458Patriot Act - Summary..............................................................................................................................................458
GRAMM–LEACH–BLILEY ACT Disclosure of Nonpublic Personal Information ........................................................................................................459The Privacy Rule ....................................................................................................................................................459The Safeguards Rule ................................................................................................................................................478
PAYMENT PACKINGQuoting Monthly Payments ......................................................................................................................................481
UNFAIR AND DECEPTIVE ACTS, PRACTICES AND FRAUD Sample Cases from CARLAW ®................................................................................................................................482
Table of Contents
THE CALIFORNIA CAR BUYER'S BILL OF RIGHTSThe Car Buyer's Bill of Rights ..................................................................................................................................493Association of Finance & Insurance Professionals Supplement to California Car Buyers Bill of Rights......................507
STATE LEMON LAWSAlabama State Lemon Law........................................................................................................................................512Alaska State Lemon Law ..........................................................................................................................................514Arizona State Lemon Law ........................................................................................................................................516Arkansas State Lemon Law ......................................................................................................................................517California State Lemon Law ....................................................................................................................................523Colorado State Lemon Law ......................................................................................................................................527Connecticut State Lemon Law..................................................................................................................................528Delaware State Lemon Laws......................................................................................................................................530Florida State Lemon Law ..........................................................................................................................................533Georgia State Lemon Law ........................................................................................................................................544Hawaii State Lemon Law..........................................................................................................................................551Idaho State Lemon Law............................................................................................................................................554Illinois State Lemon Law ..........................................................................................................................................559Indiana State Lemon Law..........................................................................................................................................561Iowa State Lemon Law..............................................................................................................................................565Kansas State Lemon Law ..........................................................................................................................................572Kentucky State Lemon Law......................................................................................................................................573Louisiana State Lemon Law ......................................................................................................................................574Maine State Lemon Law ..........................................................................................................................................577Maryland State Lemon Law......................................................................................................................................581Massachusetts State Lemon Law................................................................................................................................584Michigan State Lemon Law......................................................................................................................................592Minnesota State Lemon Law ....................................................................................................................................595Mississippi State Lemon Law ....................................................................................................................................600Missouri State Lemon Law ........................................................................................................................................602Montana State Lemon Law ......................................................................................................................................604Nebraska State Lemon Law......................................................................................................................................607Nevada State Lemon Law..........................................................................................................................................608New Hampshire State Lemon Law............................................................................................................................610New Jersey State Lemon Law....................................................................................................................................614New Mexico State Lemon Law................................................................................................................................619New York State Lemon Law......................................................................................................................................621North Carolina State Lemon Law..............................................................................................................................630North Dakota State Lemon Law................................................................................................................................633Ohio State Lemon Law ............................................................................................................................................634Oklahoma State Lemon Law ....................................................................................................................................637Oregon State Lemon Law ........................................................................................................................................638Pennsylvania State Lemon Law..................................................................................................................................639Rhode Island State Lemon Law................................................................................................................................641South Carolina State Lemon Law..............................................................................................................................644South Dakota State Lemon Law................................................................................................................................647Tennessee State Lemon Law......................................................................................................................................649
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Texas State Lemon Law ............................................................................................................................................652Utah State Lemon Law..............................................................................................................................................661Vermont State Lemon Law........................................................................................................................................662Virginia State Lemon Law ........................................................................................................................................667Washington State Lemon Law ..................................................................................................................................670Washington D.C. State Lemon Law ..........................................................................................................................680West Virginia State Lemon Law ................................................................................................................................685Wisconsin State Lemon Law......................................................................................................................................687Wyoming State Lemon Law......................................................................................................................................693
ETHICS Protect your Dealership ............................................................................................................................................694Disclosure is Critically Important ..............................................................................................................................700Deception in the F&I office ......................................................................................................................................703Ethical Leasing..........................................................................................................................................................707
INTRODUCTION TO INTERNET AUTOMOTIVE COMMERCE
INTERNET AUTO BUYING PROCESSAutomotive Internet Sites ........................................................................................................................................712Effective Selling and Closing ....................................................................................................................................712
INTERNET SALES AND ELECTRONIC COMMERCE Sample Cases from CARLAW® ................................................................................................................................714
eCONTRACTINGApproaches to Quantifying eContracting Benefits ....................................................................................................723eContracting’s Mass Appeal: Not a Matter of If, Only When ....................................................................................726
AUTOMOTIVE FINANCIAL SERVICES INDUSTRY
Auto Finance – The Competitive Landscape and Opportunities for Adaptation ........................................................729Partnerships in Auto Finance Originations: The Options, Opportunities and Outlook ..............................................735Indirect Auto Financing Source’s Value Proposition:The Foundation of Strategy ......................................................738Indirect Auto Lenders Need Equal Focus on Dual Client Groups – Dealers and Customers ....................................743Impact of Auto Financing Incentives on Financial Services ......................................................................................745Aligning New Technologies with Operational Improvement Goals ..........................................................................748Auto Finance – Perspectives on Fraud in Indirect Auto Finance ................................................................................752Auto Finance – Collection Strategies ........................................................................................................................755
Table of Contents
EXCERPT
From the Encyclopedia of Finance and Insurance Management
Excerpt includes 20 pages taken from sections: Credit and Prime Lending and Finance and Insurance – Non-Prime
potential sources of funds throughtrade-in and customer’s potentialpreferences.
• Relatives – Full names, addressesand phone numbers of nearestrelatives not living with theapplicant for both signing parties.Could be helpful if the applicantneeds a co-buyer.
• Personal References – Fullnames, addresses, and phonenumbers of personal references forboth signing parties. Some financesources may require more thanlisted on the credit application andthey won’t fund the deal withoutthis information.
• Insurance Information – Name,address, and phone number of thephysical damage insuranceagent/company.
• Buyer and Co-Buyers Signature– This signature verifies that allinformation is correct andcustomer is given a copy of thecredit application.This signaturealso gives the dealer and thefinance sources permission to pullcredit reports.
CREDIT BUREAUS
OVERVIEWA Credit Bureau is an agency that gathersinformation about consumers’ creditrelationships and provides creditors withcredit reports and scores on consumers.The sources for this information arecourt records, legal notices, local busi-nesses, banks and financial institutions,credit card companies, departmentstores and collection agencies.A CreditReport is a report containing informa-tion about a consumer’s identity, creditrelationships, court actions, consumersstatements and previous inquiries.
Dealerships make use of credit reportsfor every deal transaction. But it shouldbe kept in mind that all credit reportsdon’t contain the same information orreport all of the consumer’s credit histo-ry. When determining a consumer’scredit worthiness, dealers may order twodifferent types–single agency reports ormerged credit reports. Merged creditreports are offered by third-party creditreporting agencies that blend the datafrom multiple bureaus and repackage itinto one standard format.
There are three major national creditbureaus and one that offers mergedcredit reports:
• Experian
• Equifax
• TransUnion
• First Advantage CREDCO
ExperianExperian is an information solutionscompany that provides data services,consumer and commercial credit infor-mation and other information servicesto clients in over 60 countries. Experianhas headquarters in Nottingham, UKand Costa Mesa, California, USA, andannual sales of over $3.0 billion, andemploys more than 12,500 people.
EquifaxEquifax global operations includeconsumer and commercial creditinformation services, payment servic-es, software, modeling, analytics, con-sulting and direct-to-consumer serv-ices and they are based in Atlanta.
TransUnionTransUnion provides accurate creditand fraud-prevention data, and infor-mation-based solutions for businessand consumers.
First Advantage CREDCOCREDCO is the nation’s leadingprovider of specialty credit report-ing and information managementproducts. They provide access to allthree credit bureaus from one sourcewith the ability to merge anybureaus into one easy to read andconsistent format.
CREDIT REPORTCredit Reports are an overview of aperson’s entire history of spending andpayment habits and are used to helpdetermine creditworthiness.
There are numerous formats availableto present the data.While each creditreporting agency presents a consumer’scredit history in its own proprietaryformat, all credit reports contain thefollowing common elements of infor-mation that are vital when evaluatingthe customer’s credit history.
CONSUMER IDENTIFYINGINFORMATIONThis data helps verify consumer iden-tification by providing:
• Consumer’s name.
• Social security number.
• Date of birth.
• Current and previous address.
• Current and previous employers.
• Alternate names.
Credit and Prime Lending
182 Encyclopedia of Finance and Insurance Management
DEMOGRAPHIC INFORMATIONDemographics contains the con-sumer’s telephone number and helpsverify consumer identification. It isavailable as an optional feature.
FRAUD ALERTThis contains information related tofraud prevention services. Each creditbureau service offers search mechanismsthat verify social security numbers andaddresses in order to prevent fraudu-lent use of credit information. Such as,flagging a social security number thathas not been issued by the SocialSecurity Administration or is invalid.Other optional services include:
Experian: FACS+ / FraudShield Summary
Equifax: SAFESCAN
TransUnion: HAWK-ALERT
CREDIT SCOREA credit score is a scientific way ofassessing how likely a borrower is topay back a loan.These scores measurethe relative degree of risk a potentialapplicant represents to the financesource. Credit scores are now used asthe primary means of measuring aconsumer’s credit worthiness and tohelp lenders make a decision aboutapproving applications.
Experian: FICO
Equifax: BEACON
TransUnion: EMPIRICA
Fair Isaac Credit Scoring ModelFounded in 1956 by mathematicianBill Fair and engineer Earl Isaac, FairIsaac sparked a revolution in thefinancial services industry with theintroduction of credit scoring, whichhelps lenders improve business perform-ance, customer service and consumeraccess to credit. The Fair Isaac CreditBureau Score (FICO) is calculated from
credit data contained in repository files.The score does not include income,assets, or any demographic data in itscalculation. The following informationdetermines the score:
• Payment History
• Credit History
• Public Records
• Inquiries and New Credit
• Types of Credit in Use
• Number of Trade Lines
• Outstanding Debt
• Average Balance of Trade Lines
A Fair Isaac Credit Bureau Scoreranges from approximately 375 to900. A higher score indicates that theborrower is a better credit risk, mean-ing they are less likely to default on aloan. The Fair Isaac score models ateach credit bureau is of similar designand the scores are scaled to indicate asimilar level of risk across all threerepositories.
A credit report may be requested withor without a credit score, which isoptional. Each report with a creditscore is accompanied by the top fourreasons the score is not higher.
PROFILE SUMMARYProvides a summary of all activity onthe consumer’s credit report and isavailable as an optional feature.
PUBLIC RECORDSPublic record information is main-tained on a consumer’s file in com-pliance with the Fair CreditReporting Act (FCRA). This infor-mation is obtained from county, stateand federal courts and consists ofbankruptcies, liens and civil actionsagainst a consumer.
The length of time each record is heldon the database varies by the type of
record. All bankruptcies stay on therecord for 10 years from the filing dateand other derogatory credit staysseven years, except unpaid tax liens,which can stay on the record indefi-nitely. In most instances, public recordinformation is considered a negativemark against a consumer.
BankruptcyFederal laws governing the conditionsand procedures under which personsand businesses that are unable to repaytheir debts can seek relief. Filing forbankruptcy may seem a reasonableway to relieve individuals or business-es from overwhelming debt. But filingfor bankruptcy does not wipe out alldebt obligations. Child support, gov-ernment loans like student loans, andtax liens are still due and payable evenafter a bankruptcy is filed.
After a bankruptcy is filed in thecourts, it becomes a public record. Ona credit report, bankruptcy usuallyappears as a public record.A bankrupt-cy may also be referenced by a tradeline on a credit report if the trade lineis listed in the bankruptcy filing.Thereare different plans under bankruptcyand the court’s ruling determines theextent of the debtor’s liability.
LienA lien is a contract or mortgagewhich holds financed collateral assecurity against default of paymentfor such collateral.A lien can also beplaced against a consumer for failureto pay the city, county, state or fed-eral government money that isowed, like tax liens.
JudgmentA judgment is a decision by a court oflaw recognizing the validity of anargument presented. Judgments incivil suits may involve monetaryawards or forfeiture of property fromone party to another.
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CREDIT HISTORY/TRADE LINESTrade lines provide an on-goingrecord of the consumer’s buying andpayment activities.
Current AccountCurrent accounts are accounts in whichno amount is past due.
Delinquent AccountThe state of an account that indicatesit is 30, 60, 90 days past due at thetime of the loan.
Collection AccountAn account that is in default and hasbeen turned over to an agency ordepartment in an attempt to collectmoney that is owed. Typically, anaccount is placed with a collectionservice when other reasonable attemptsto settle the account have failed.
Charge offAn account on which there is a lossand the amounts have been trans-ferred to loss and charged off asuncollectible.
Repossession Reclaiming of a vehicle using legalprocedures by finance source.Generally results from a default inpayment of the finance contract.
ForeclosureLegal repossession of a mortgagedproperty resulting from a borrower’sfailure to meet the terms of the loanagreement.
INQUIRIESAn entry on a credit report indicatingthat a previous report has beenordered.The entry identifies the sub-scriber and the date the report wasordered. There are two types ofinquiries.
• A hard inquiry is when consumershave applied for credit, which givesthe lender permission to pull theircredit report.These are for allcredit grantors to review.
• A soft inquiry is only available forconsumers to see. It does notinfluence consumer’s credit score.This type of inquiry includesconsumer’s request for a creditreport or pre-screen/pre-approvedinquiries for credit grantors.
MESSAGES/CONSUMERSTATEMENTSThis section may include general con-sumer statements, informational orother special messages of facts or con-ditions affecting the credit file.
PRIME LENDING AND THELOAN PROCESS
PRIME LENDINGCompleting the finance process withcustomers whose credit ratings fallwithin the category of prime lendingis typically a simple process.The crite-ria regarding credit history, residenceand employment history, and budgetare clearly defined and typically easyto meet by the customer.
These customers are always very sen-sitive to interest rates and the terms ofthe loan.Your F&I skills and knowingthe lending guidelines of your financesources will often make the differencebetween a dealer finance and out-source finance transaction.
LENDING GUIDELINES ANDCRITERIAEach applicant must qualify forapproval under the lender guidelinesof a specific finance source. Financesources will often have a variety ofprograms available to make themselvesmore affordable and competitive.Continuous modifications are typicallybeing incorporated and new promo-tions are created. Finance Managersshould keep abreast with new pro-grams and promotions at all times toserve the customers better.
CREDIT SCOREPrime lenders rely heavily on creditscores to qualify the buyers.The CreditBureau score ranks potential applicantsbased on the likelihood that they willpay their credit obligations as agreed.Ahigher score indicates a better creditrisk. Generally any buyer with a creditscore less than 600 to 650 will notqualify for prime lending.
DOWN PAYMENTPrime buyers have a proven trackrecord of paying their bills and obliga-tions in a timely manner so the down
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payment requirement is characteristi-cally lower. Some prime lenders maynot require a down payment
RESIDENCE/EMPLOYMENTA complete credit application shouldsuffice for resident and employmenthistory, unless directed otherwise bythe finance source. Typically a two-year residence and employment histo-ry is needed and 5 years informationon the credit application.
To establish stability, one-year contin-uous employment history is preferred.
INCOMEThe customer must have adequateincome to cover the repayment of theirloan. Before the approval can beobtained, the stability of income andthe verification of income must beestablished. Stability of income is usual-ly derived from the employment histo-ry on the credit application.Verificationand documentation of income must beprovided by the Finance Manager.
BUDGET/DEBT-TO-INCOMECustomer’s monthly payment must bewithin the ratio of budget guidelineswhich means that the monthly pay-ment must not exceed a certain per-centage of their gross monthlyincome. Each lender may have a spe-cific percentage allowance that theyhave determined to minimize thedefault risk on their loan programs.Debt-to-Income percentage for primelending is typically between 40% to45%. Payment-to-Income percentageis typically between 18% to 20%.
Gross Monthly Income X Debt-to-Income Percentage = Monthly Payment
CREDIT CRITERIAIn addition to the ability to pay for avehicle, lenders will look at the buyer’swillingness to repay as indicated bythe credit report – that is, how well
the buyer has paid their loans andother debts in the past.
Prime lenders will look mostly at thetwo years of credit history and they willallow for minor, past credit issues, aslong as there is a “reasonable” explana-tion. If there are some credit issues, theymay be overcome with sufficient expla-nations and supporting documents.
THE LOAN PROCESSFor dealerships and lenders to make aprofit, time is money. Quick approvalsand funding enable everyone to getpaid sooner, and improve the dealer-ship’s cash flow. Such technologicalenhancements as the electronic pur-chaser’s statement and eContractinggreatly reduce the time it takes toprocess a loan and get it funded.Regardless of the delivery method,careful attention to detail is essentialto avoid problems down the line.
PLACING THE APPLICATIONWITH THE LENDERThe lender needs the following infor-mation for each loan it will consider.A cover letter from the dealershipshould include the dealership’s contactinformation, any statement of factspertaining to the specific loan applica-tion, and the list of items that arebeing faxed or sent electronically:
• A Detailed, Signed Purchaser’sStatement
• Invoice with Due Bill/KelleyWholesale Blue Book
• Sales Contract or Loan Structure
If Applicable:
• Credit Report Copy
• Proof of Income
• Proof of Insurance
• Notice to Co-Signer
• Product Certificates
Once the lender receives the package,it is either electronically scored orreviewed by an underwriter to deter-mine if it meets the institution’s lend-ing guidelines. The following criteriaare used in making the decision toextend credit:
• Credit/Credit Score
• Advance Ratio/Loan to ValueRatio
• Down Payment
• Residence/Employment
• Income/Budget
Should the criteria meet the lender’sguidelines, the deal will most likely beapproved. With electronic submissionand qualification of the loan applica-tion, the decision process is stream-lined, and fast.
FUNDINGOnce a loan is approved, the dealer-ship must compile and send a com-plete loan package to the lender forfunding.Traditionally, this package wastransported to the lender by a runner,if the lender was in the same area, orby FedEx or other means of quickdelivery.These days, dealers who prac-tice eContracting speed the processimmensely because there is no morewaiting for approvals to arrive by faxand no more overnight FedEx pack-ages leaving the dealership. Once thelender verifies that all the documentsare in order, the funding is wired tothe dealership’s account.
Another advantage to eContracting isthat the system doesn’t allow incom-plete applications to be processed.Thissaves time, and cuts down on creditdenials for such things as missingphone numbers or other information.Other reasons for loans to be deniedinclude the inability to verify income,residency or employment; insufficienttime on the job, in the same industry
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or at the same address; poor or insuf-ficient credit history, over-budget interms of income to debt; and an inad-equate number of references.
DOCUMENTATION CHECKLISTo Lender’s Approval Notification
o Complete and signed Purchaser’sStatement
o Sales Contract with all Dealer andCustomer signatures
o Purchase Order
o New Vehicle: Factory Invoice and all Due Bills
o Used Vehicle: Kelley Wholesale Blue Book
oTrade-In: Kelley Wholesale Blue Book
o Co-Buyer Agreement signed by Buyerand Co-Buyer
o Agreement to Provide Insurance signed by Buyer
o Odometer Statement
o Copy of Valid Driver’s License
o Proof of Insurance
o Proof of Income, Current pay stub withYTD earnings (if applicable)
o Other Stipulations required for Approval
IF APPLICABLEo Copy of Extended Service Contract
o Copy of Credit Insurance Policy
o Copy of GAP Protection Program
o Copy of any other Products Sold
GETTING DEALS APPROVEDThe dealership’s cash flow, and indeed,the entire operation, is dependentupon the lender approving the loansand funding the deals. The followingshould be considered when engagingin this process:
• Compile a Complete PackageA loan application that contains infor-mation that is inaccurate or is missing
will delay the approval process, oreven sabotage it.Verify with the cus-tomer that all the information regard-ing employment, residence and credithistory is accurate before sending iton to the lender. If stipulations arerequired, include them in the dealpackage.
• Watch for Approval PatternsKeep track of lender approvals andrejections.This should provide a clear-cut idea of exactly what the lender islooking for in a loan qualification.When submitting a deal that is mar-ginal, take the time to let the lenderknow the reasons for any credit prob-lems. Providing the reasons, and sub-sequent solutions, to these credit issuescan mean the difference betweenapproval and denial.
• Establish a Lender PortfolioAs the saying goes, don’t put all youreggs in one basket. Utilize a variety oflenders, but don’t go overboard,either. Establish a small stable oflenders, and keep track of your repos-session rate with them. Obviously, thesmaller that rate, the more pull youwill have.
DEALING WITH LENDERS
DEVELOPING RAPPORT,ESTABLISHING TRUSTAn integral part of a finance manager’ssuccess is developing relationships.Because, no matter how hard youwork or how proficient you become,you won’t be successful unless youhave a strong support network withyour service providers. This includesanyone who must complete their tasksin a timely, professional manner inorder for you to accomplish yourgoal: final approval and funding.
As an F&I manager, financial under-writers are your bread and butter.Cultivate and maintain a good rela-
tionship with them. Keep it honestand professional. If an underwriterdiscovers inaccuracies in your deals, itwill hamper your ability to do yourjob. Avoid the shotgun approach ofsending the same deal to multiplelenders, and don’t play one lenderagainst another in an effort to obtainapproval for a single loan. Look at thebig picture, and count on workingwith your lending counterparts for along time. For this to occur, it isimperative you treat each other withthe utmost respect.Trust is of extremeimportance.
Many finance managers choose to seethis group as both unimportant andsecondary to the overall process, or assimple service providers.The truth is,unless you have the assistance of theseessential people, you cannot accom-plish your goals.Their attitude towardyou significantly affects their attitudetoward your loan packages. By treat-ing these providers in a respectful,friendly and considerate manner, youwill establish a positive relationship,build rapport and create an overallspirit of cooperation.
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CREDIT UNIONS
OVERVIEWCredit unions are often a tough formof competition that appear unbeat-able. But, while they offer valuablecustomer services, they are not alwaysthe only game in town at the best rate.
The mere words,“Credit Union”, cancreate a negative attitude even in thebest Finance Manager. Because it isfrequently assumed that the creditunion has a lower rate and that thecustomer is already pre-approved.Sometimes they do not have the bestrate, and sometimes customer is notpre-approved.
Credit unions inspire loyalty in theircustomers. Customers are usually pre-pared for you to negate what theircredit union has to offer and frankly,resent it. If Finance Managers are toavoid the problems associated with theloss of finance control to creditunions, it would be useful to under-stand what credit unions are, how theyoperate, and the limitations and weak-nesses of their service.
The knowledge clarifies many popu-lar misconceptions that exist concern-ing these organizations.
A credit union is a member-ownedcooperative financial institution that isnot-for-profit. Since credit unionsexist solely to serve their member-owners, they are able to offer compet-itive rates on investments and loans.Each year members have the ability toselect candidates for the Board ofDirectors among their peers, to repre-sent them in setting the credit union’spolicies.
Over the past decades, credit unionshave become the most rapidly grow-ing consumer installment creditlenders in the United States. They
have far out-distanced the growthrates of commercial banks and finan-cial institutions.Almost anyone can join a creditunion. It’s just a matter of findingwhat credit union you are eligible tojoin. Criteria for joining a creditunion can include where you live,where you work, religious affiliation,ethnic group or associations to whichyou belong.
• Residential – for anyone livingwithin a certain geographical area.
• Industrial or occupational – thecompany-type credit union.
• Association or fraternal – parishand club credit unions.
• Governmental – federal, state,county or local governmentemployees.
Most common reasons why cus-tomers use credit unions are:
1. Loyalty to the Credit Union
2. Confidential
3. Superior Service/Convenience
4. Habit
5. Lower Cost/Interest Rate
6. Better Down Payment andTerms
7. Easy Approvals
8. Job Security
9. Payroll Deduction
10. Free Disability Insurance
Several of these reasons are in factmisleading.The approvals are not thateasy, same loan process is involved andthere is no such thing as free disabili-ty insurance. It usually is an advance-ment on payments that have to bepaid back at the end of the loan.Job security is not driven by whetheran employee is a credit union memberor not, that would be illegal. In fact,
being with an employee credit unioncould have quite the opposite effect. Ifa customer were to go on strike orleave the company, the credit unionmight have the right to call in the loanat any time.
But on the other hand, creditunions offer customer a lot ofamenities and sometimes you can-not beat them, so best solution thanwould be to join them.
Many credit unions are now allowingdealerships to use their programs –Credit Union Direct Lending – onpremises and do the loan.They gener-ally pay some sort of reserve to thedealership and they agree to let yousell your finance products and are a lotless likely to battle you for position inthe sale of a service agreement.
CREDIT UNION DIRECTLENDING – CUDLCU Direct was created in 1994 toprovide a fast and easy method ofcredit union financing at local dealer-ships. Today the program spans 14states, representing more than 10.2million credit union members, 300credit unions and 3,000 dealerships.
Credit Union Direct Lending is thesystem developed by CU Direct tofacilitate access to credit union financ-ing at local dealers.
CUDL Dealer can provide creditunion financing right at the dealershipwithout customer having to return tothe branch. It takes only minutes tohave a financing decision.
Once the financing is approved, thedealer reviews the credit union’sterms and conditions, completes thesales contract. All documents aresigned at the dealership and thepaperwork with CUDL is all takencare of electronically.
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However, all automatic payments andtheir discounts must be set up withthe credit union after the loan is final-ized as the dealership has no access tocustomer’s personal accounts. If cus-tomer is currently not a credit unionmember they may be eligible to signup on the spot. This makes financingfast and convenient for customer andthe Finance Manager.
THE ROBERTS REPORTThe Roberts Report is a publicationfounded in 1983 that offers a wealthof useful information on banks andcredit unions. Included in the month-ly updates is retail payoff informationfor all lenders, leasing payoff informa-tion, check verification phone num-bers, loan info, complete address/phone/fax information and financerates to help customers make immedi-ate buying decisions.
Additional resource material includesnonprime and secondary lenders,manufacturer customer service num-bers, credit reporting agencies, com-puter systems/technical support num-bers, Manufacturer Warranties, servicecontract customer in-service num-bers, insurance companies and 50-state license and lien info.
LANE GUIDE LENDER DIRECTORYThe Lane Guide is a directory that offersa complete reference on all banks, savingsbanks, finance companies, mortgagelenders, loan servicers, credit unions andother major creditors. The Lane Guideprovides instant access to loan service cen-ters, main offices, loan departments, spe-cialized departments and branch offices.
Established in 1957, the Lane Guidehas been widely used by the industry
to locate information concerningpayoffs, demands, ratings, verifications,returned check disposition, bank/lender mergers, acquisition references,mortgage discharges and other typesof financial information. The LaneGuide lists more than 140,000 openand closed lenders, creditors andbanks nationwide.
Listings include complete mailingaddress, phone and fax numbers, toll-free information lines, credit ratingpolicies, bureaus reported to, ratinghours and more. The Lane Guidemaintains cross-references on allclosed institutions the current loca-tion of loan records can be found. Allthe information is available in region-al print editions or nationwide onCD-ROM and Internet. Each printededition includes lenders nationwidewhich lend or service in that region.
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LOAN STRUCTURING
FOUR C’S OF CREDITLenders are primarily looking for fourthings when they are analyzing anapplication and their credit file.The firstthing lenders want to know whether ornot you are someone who acts respon-sibly, takes their debts seriously and paystheir bills on time – Character.
Secondly, a lender will look at capaci-ty to pay your bills on time. This isbased upon your income, or the job,and how that corresponds to yourtotal debt. Finally, a lender will look atthe possessions you currently have,your capital, and your collateral – theitem pledged for security.
Character – is all the features, traits, andpeculiarities of an individual which dis-tinguishes one person from another.The lender is looking for an applicant’scharacter to have the moral qualities toact responsibly, take their debts serious-ly and pay their bills on time.
Credit – is years of credit history,credit score, number of tradelines,individual and cumulative high credit,present and prior auto loans/mort-gage accounts and their status, currentaccounts and derogatory items.
Capacity – is the ability of the bor-rower to procure enough income on a
steady basis to pay his debt (can heafford the monthly payment). Lenderwill look at customer’s capacity topay his bills on time. This is basedupon his income, or the joint incomeof his and his spouse, and how thatcorresponds to their total debt.
Collateral – is an item of valuepledged by the borrower to the lenderas additional security for the loan. Ifthe loan is for durable “goods” (ex.House or car), the durable “goods”itself is pledged. If the customer wereto default, the item would be repos-sessed and sold by the lender. If theamount brought in by sale is notenough, the customer is still responsi-ble for the difference. For this reason,banks require a down payment ondurable goods they finance.
All these factors help provide lenderswith needed information which isthen used to determine whether ornot they think the applicant is credit-worthy. Before credit scores, lendersphysically looked over each applicant’scredit report to determine whether togrant credit derived from four C’s ofcredit. Not only was this time con-suming, but also human judgment wasprone to mistakes and bias.This is whyin recent times, many lenders havestarted to standardize credit analysis byusing an established credit scoring sys-tem. Credit scores help lenders assess
risk more fairly because they are con-sistent and objective.They reflect cus-tomer’s likelihood to repay debtresponsibly, based on his past credithistory and current credit status.
STRUCTURING AND PLACINGTHE LOANToday, there is an immense selection ofdifferent lenders for Finance Managersto choose from. Each lender will havedifferent tiers of loan programs availableand each will come with it’s own set ofguidelines which must be met in orderto secure an approval.
Learning these guidelines is impera-tive to the deal structuring and forcontinued success of approvals.
Following exercise is for example pur-poses only. Each lender will have spe-cific guidelines and program levels.
EXAMPLECustomer: John Smith
Purchase Write-Up / 4 Square
Vehicle: 2005 Honda Accord
Invoice: $17,800
Selling Price: $19,900
Down Payment: $1,600
Payment: $ 387 @ 60 months
No Trade
Credit Score: 678
Gross Income: $4,200
Rent: $1,200
Insurance: $100
Total Credit Debt: $195
Credit: No Bankruptcy,Foreclosure,Repossession,TaxLien, Judgment,Charge Off orCollection Accounts.Established on CreditBureau for 7 yearswith 12 satisfactorytrade lines.
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If the dealership treats these nonprimecustomers with respect, and accom-modates their needs, they will breedintense customer loyalty. These cus-tomers will often travel beyond thedealership’s normal geographicalboundaries, and tell their inner circleshow the dealership was able to assistthem when they needed it the most.They’ll also come back themselveswhen they are in a better position toupgrade their vehicles.
GENERAL CHARACTERISTICSOF A NONPRIME CUSTOMER
Following are some of the generalcharacteristics of a nonprime cus-tomer.
• Lower credit score
• Marginal credi
• History of delinquent payments
• Recent Bankruptcy
• Foreclosure in history
• Repossession in history
• Tax Liens and Judgments
• Collections and Charge offs
• High Debt to Income Ratio
• High Payment to Income Ratio
NONPRIME FINANCETERMINOLOGY
DEFINITIONS
SELLING PRICECash price of the vehicle includingaccessories.
AMOUNT FINANCEDThe price of the vehicle (includingcash price, accessories, documentationfee, tax, license, DMV fees, productsand credit insurance if sold) less thesum of the down payment (includingtrade-in value).
INTEREST RATEIt is the charge for borrowed money,usually figured as a percentage of theprincipal and computed annually.
FINANCE CHARGEThe amount of money charged andadded to the principal balance by afinancial institution for the service ofproviding credit.
MAXIMUM ADVANCEPercentage of Invoice or WholesaleBook that the lender will approve forthe deal PLUS tax, license, smog, regis-tration, documentation fee, lenderapproved products and credit insurance.
INVOICEManufacturer’s cost of the vehicle to theDealer. This includes factory installedaccessories and shipping charges.
WHOLESALE BOOKWholesale value of a vehicle by Kelly BlueBook or NADA.It is determined by addingto or subtracting from the base wholesalebook, the equipment and mileage.
ACQUISITION FEE / DISCOUNTA fee charged by the Lender to Dealerfor funding a nonprime credit loan.
SELF EMPLOYED/INDEPENDEDCONTRACTORAnyone who does not have incometaxes and social security contributionswithheld by an employer.
FIRST TIME BUYERAnyone without prior auto credit history.
CREDITThe manner in which a subject fulfillshis or her financial obligations.
MARGINAL CREDITA credit history that has prior creditproblems including delinquent accounts,collections,charge-offs,bankruptcies andrepossessions.
CURRENT ACCOUNTAn account where no amount is past due.
CURRENTLY DELINQUENTACCOUNTAccounts that are currently 30, 60, 90days past due.
DEROGATORY CREDITAccounts that are showing unsatisfac-tory payment history, includingCollection Accounts, Charge Offs,Liens, Judgments, Bankruptcies,Repossessions etc,.
COLLECTION ACCOUNTAccounts that are in default and hasbeen turned over to a collection agencyto collect the money that is owed.
CHARGE OFFAn account on which there is a lossand the amounts have been trans-ferred to loss and charged off asuncollectible.
PUBLIC RECORDS Public record information is maintainedon a consumer’s file in compliance withthe Fair Credit Reporting Act (FCRA).This information is obtained fromcounty, state and federal courts and con-sists of bankruptcies, liens and civilactions against a consumer.
LIENLien is a contract or mortgage whichholds financed collateral as securityagainst default of payment for suchcollateral
JUDGMENTA decision by a court of law recogniz-ing the validity of an argument pre-sented and demands monies paid.
FORECLOSURELegal repossession of a mortgagedproperty resulting from a borrower’sfailure to meet the terms of the loanagreement.
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BANKRUPTCYA collection of federal legislationwhich permits a debtor to seek legalrelief from overwhelming debt by dis-tributing the debtor’s available assetsamong the various creditors. Theremaining obligations are declarednon-binding, and the debtor is legallyabsolved of the debts.
There are various plans under bank-ruptcy, but generally, the debtor-cred-itor relationship is administered by aU.S. Bankruptcy Court. Subsequentcourt rulings determine the extent ofthe debtor’s liability.
After a bankruptcy is filed in thecourts, it becomes a public record. Ona credit report, bankruptcy usuallyappears as a public record. It is report-ed to credit reporting agencies andstays on the individual’s credit recordfor a period of 10 years.
Chapter 7 Bankruptcy –DischargedA collection of federal legislationwhich permits a debtor to seek legalrelief from overwhelming debt by dis-tributing the debtor’s available assetsamong various creditors.The remain-ing obligations are declared non-bind-ing, and the debtor is legally absolvedof the debts.
Chapter 13 Bankruptcy –DischargedA bankruptcy of an individual wherebythe individual is allowed to retain his/herassets and pay creditors on a reducedpayment schedule.The total debt of theindividual may be partially absolved bythe U.S. Bankruptcy Courts.
Chapter 7 or 13 Bankruptcy –DismissedA Chapter 7 or 13 BK where thedebtor, the court or the trustee hasdismissed the case without relievingthe debtor’s debts.
Chapter 11 BankruptcyA bankruptcy of a business, wherebythe business is allowed to continueto operate and pay its creditors on areduced payment schedule. Thetotal debt of the business may bepartially absolved by the U.S. Bank-ruptcy Court.
REPOSSESSIONProperty which a lender has takenfrom a customer under rights grantedby a security agreement. Normally,repossessions result from a customer’sdefault in payments
Involuntary RepossessionThe retaking of a vehicle using unilat-eral or legal procedures.
Voluntary RepossessionA repossession when the customerand finance source mutually agreethat repossessing the vehicle is theonly remaining collection remedy.The customer willingly relinquishesthe vehicle.
Redeemed/Reinstated RepossessionFull payment or a satisfactory update ofan account which allows the return ofa repossessed vehicle to the customer.
DeficiencyAny amount owed to the lender bythe customer following the sale of arepossession, after deducting from theoutstanding account balance the sell-ing price of the vehicle, rebates, returnpremiums and other amountsreceived, and after adding late chargesdue and allowable expenses.
NONPRIME FINANCEGUIDELINES
NONPRIME DEAL STRUCTUREFinance guidelines details the qualifi-cations of the following for the dealstructure.
• Maximum Advance Percentage
• Amount Financed
• Maximum Loan to Value Ratio
• Down Payment
• Interest Rate
• Dealer Participation
• Acquisition Fee / Discount
• Term
• Model Year
• Mileag
• Income
• Maximum Debt to Income Ratio
• Maximum Payment to Income Ratio
• Residence Requirements
• Employment Requirements
• Credit Criteria
• Documents
ADVANCEMaximum Advance – Percentage ofInvoice or Wholesale Book that thelender will approve for the deal PLUStax, license, smog, registration, docu-mentation fee, lender approved prod-ucts (ESC, GAP) and credit insurance.
Example:MSRP: $21,000
Invoice: $15,000
Down Pymt.: $2,000
Max Advance Ratio: 115%
Deal Structure:Invoice/wholesale book multiplied bythe maximum advance equals themoney from the lender.
$15,000 X 115% = $17,250
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Money from the lender plus the downpayment from the customer equals themaximum selling price in guidelines.
$17,250 + $2,000 = $19,250
or
Example:MSRP: $21,000
Selling Price: $18,500
Invoice: $15,000
Down Pymt.: $2,000
Max Advance Ratio: 115%
Selling price minus the down pay-ment divided by the invoice/whole-sale book equals the advance ratio dealwas structured at.
$18,500 - $2,000 = $16,500
$16,500 / $15,000 = 110%
Maximum advance ratio is 115%, dealwas structured at 110%,it is in guidelines.
AMOUNT FINANCED
Selling Price _________
Taxes +_________License/Reg/Smog Fees +_________
Documentation Fee +_________
ESC +_________(approved amount from lender)
Approved Products/ +_________Credit Insurance
Total Amount =_________
Total Down Payment -_________
Amount Financed =_________
Maximum and Minimum AmountFinanced qualifications are stated inthe each lender’s finance guidelines.
LOAN-TO-VALUE RATIO (LTV)Amount Financed divided by the
invoice/wholesale book equals theloan to value ratio.
Max Loan to Value Ratio: 120% to 140%
Example:MSRP: $21,000
Selling Price: $18,500
Invoice: $15,000
Down Pymt.: $2,000
Amount Financed: $18,350
Max Loan to Value Ratio: 140%
Amount Financed divided by theinvoice/wholesale book equals theloan to value ratio.
$18,350 / $15,000 = $122.33%
Maximum loan to value ratio is 140%,deal was structured at 122.33%, it is inguidelines.
Credit InsuranceCredit Insurance is generally financedby the lender and advanced as a plus aslisted in their guidelines.
Service ContractsService contracts are generallyfinanced by the lender and advancedas a plus up to the listed price in theirguidelines.The Service Contract mustbe equal to the term of the contractand at least 2 years on used vehicles.
GAPGAP is generally financed by thelender and advanced as a plus up tothe listed price in their guidelines.
Other Finance ProductsOther Finance Products are sold bythe dealer and can be financed with-in the advance ratio limits by thelender.
DOWN PAYMENTMinimum Down PaymentGenerally, it is 10% of selling price or
1,000 whichever is greater. First timebuyers, may go up to 20 % of sellingprice.
Trade- InNet trade-in value based onWholesale Book may be used as thedown payment. Over allowance ontrade-in are not accepted towards thedown payment.
Manufacturer’s Rebates / FactoryIncentivesA Manufacturer’s Rebate may be aspartial down payment, refer to lender’sguidelines. Incentives or rebates thatare given directly to the Dealer cannotbe used as down payment.
Deferred Down PaymentsDeferred down payments are accept-able as long as lender’s minimumdown payment requirements havebeen satisfied prior to funding. Anydeferred payments must be scheduledprior to the first payment due date.
Third Party or Seller AssistedDown PaymentsThe buyer may not borrow the downpayment from a different sourceincluding credit cards.
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INTEREST RATE and DEALERPARTICIPATIONInterest RateBase APR/Buy Rates range from 12%to 23% based on the qualified tier orprogram. Lenders reserve the right toadjust rates based on the credit risk ofapplicants.
Contract APR’s cannot exceed Stateusury limitations. Rates in excess of12% add-on must be written as simpleinterest contracts.
Most lenders will accept both simpleinterest contracts and pre-computedcontracts.
Dealer ParticipationDealer may receive participation up to2% to 3%, but may be lower based onthe overall deal structure and credittier. Most lenders will pay $100 flat, ifcontract is written at buy rate. Referto lender’s guidelines.
Participations are paid based on one ofthe following:
• Participation is paid on a 70/30split, without chargebacks.
• Participation is paid on a 70/30split, and fully earned after 3payments. In the event of earlypayoff or repossession prior to 3contractual payments beingreceived, dealer agrees to pay thelender full refund of participation.
• Participation is paid 100%, andfully earned after 6 payments. Inthe event of early payoff orrepossession prior to 3 contractualpayments being received, dealeragrees to pay the lender full refundof participation.
ACQUISITION FEE /DISCOUNTAcquisition fee will be assessed foreach loan based on the credit quality
of the applicant and may NOT bepassed on directly or indirectly tothe customer. It must be absorbedby the dealer.
Acquisition fees varies based on thequalified tier/program and lenders.Please refer to lenders guidelines.
VEHICLE REQUIREMENTSEligible VehiclesPrivate passenger vehicles, vans, andlight trucks. Current plus 8 priormodel year vehicles with less than90,000 miles
Ineligible Vehicles
Limousines
Salvage Vehicles
Alpha Romeo
Commercial Vehicles
Van Conversions
Peugeot
Lemon Law Vehicles
Conversion Packages
Sterling
Vehicles for Hire
Gray Market Vehicles
Daewoo
LOAN TERM and MILEAGELoan Terms are based upon mileage.Following is an example.
MILEAGE MAXIMUM TERM0 - 50,000 60 months
50,000 – 60,000 48 months
60,000 – 70,000 36 months
70,000 – 80,000 24 months
Maximum TermFor most nonprime lenders standardmaximum term is 60 months subject
to vehicle eligibility. Extended terms,such as 66 or 72 months will be con-sidered with a surcharge per thelender’s guidelines.
Maximum MileageMaximum mileage is 90,000 miles.
INCOMEMinimum IncomeMinimum $1,400 to $1,900 verifiablegross monthly income from theBuyer. Part-time income will be con-sidered if applicant has been employeda minimum of 1 year with the samepart time employer.
SSI, Pension, Retirement income,child support, self employed and mili-tary acceptable if required documen-tation is provided.
Ineligible IncomeShort term employment, temporarydisability, unverifiable cash income,education loan/grant income, work-er’s compensation and inconsistentincome.
BUDGETAll budget calculations use the GrossMonthly Income of Buyer.
Rent/House Payment: Minimumamount defined in the lender’sguidelines will be used in budgetcalculations in the event that theactual rent or house payment is lessor the buyer is living rent free.Military Buyers are exceptions to theminimum rent factor used in budgetcalculations.
Auto Insurance: Minimum amountdefined in the lender’s guidelines willbe used in all budget calculations.
Open Obligations (Installment andRevolving Accounts): As reportedon credit bureaus, using the scheduledmonthly payments.
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Collections, Charge-Offs: They arebudgeted 3% of the outstanding bal-ance if derogatory credit is less than 2years from the application date. Thetwo-year period is calculated from thetime the account was charged off, sentto collection.
Judgments,Tax Liens: 3% of the out-standing balance.
Child Support/Alimony: As report-ed on credit bureaus, using the sched-uled payment, or listed within courtorder.
Student Loans: They are budgetedusing the student loan table unlessthey are deferred.
DEBT-TO-INCOME RATIOCustomer’s monthly payment must bewithin the ratio of budget guidelineswhich means that the monthly pay-ment must not exceed a certain per-centage of their gross monthlyincome.
Rent/mortgage plus auto insuranceplus total credit payments from thecredit reports, (including installmentaccounts, revolving accounts, collec-tion accounts, charge-offs, judgments,tax liens, etc,) and the auto paymentdivided by the gross monthly incomeequals the debt-to-income ratio.
Each lender have a specific percentageallowances for maximum debt-to-income ratio, but average is between45% to 50%.
PAYMENT-TO-INCOMEAuto payment divided by the grossmonthly income equals the payment-to-income ratio.
Each lender have a specific percentageallowances for maximum payment-to-income ratio, but average is between15% to 20%.
STABILITYNonprime lenders require document-ed proof of residence, employment,and income for stability.
ResidenceGenerally buyer must have a mini-mum of one year at current residenceor three years in the same area/state.Relocation by the same employer orhomeowners are acceptable.
EmploymentBuyer must have a minimum of oneyear of continuous, regular, permanentemployment with three years docu-mented employment history withoutgaps.
CREDITDelinquent AccountsNonprime lenders are flexible withprevious delinquencies, but will notaccept an applicant with currentlydelinquent accounts.
Collections/Charge-Offs/Judgments/Tax LiensNonprime lenders are flexible if thederogatory credit is older than 2years from the application date. Thetwo-year period is calculated fromthe time the account was chargedoff, sent to collection. If less than 2years, they are considered based onthe amount defined in the lender’sguidelines.
BankruptcyLenders are unable to consider openBankruptcies. Bankruptcy must bedischarged. Dismissed Bankruptciesare not acceptable, but some lenderswill consider it case by case bases.
Generally multiple bankruptcies willdisqualify the applicant, except aChapter 13 bankruptcy converteddirectly to a Chapter 7 bankruptcyand discharged will not be treated asmultiple bankruptcies.
RepossessionRepossessions are acceptable if thedate of the repossession is more than12 months of the date of the applica-tion or it was the result of a dischargedbankruptcy. Redeemed or reinstatedrepossessions are not consideredrepossessions.
Generally multiple repossessions willdisqualify the applicant, unless theyare the result of a discharged bank-ruptcy. They may be considered caseby case bases.
ForeclosureForeclosures will be considered caseby case bases.
Student LoansStudent Loans that are delinquent, ina collection or charge-off status areacceptable, but can not be used as highcredit to qualify for a program.
VEHICLE INSURANCEFull documented coverage.
Maximum $500 collisionMaximum $500 comprehensive
Agreement to Provide Insurance formcompleted and signed by dealer andbuyer(s)
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INELIGIBLE APPLICATIONSThe following items fall into ineligi-ble applications criteria for nonprimelenders.
• Open Bankruptcy
• Dismissed BK within the last 12months or Multiple DismissesBankruptcies
• Repossessions in the last 12months (unless included in adischarged Bankruptcy)
• Current Auto/Rent/Mortgagedelinquency (60+days)
• Delinquent Child Support
• Consumer Credit Counseling
• Income less than required
• Debt-to-Income Ratio exceedingthe maximum
• Payment-to-Income Ratioexceeding the maximum
• Residence and Employmenthistory less than required
• Fraud/Skip – previously reportedas SCNL
BORROWERTYPE OF BUYERIndividuals only. No corporations orpartnerships.
CO-BUYERA co-buyer may be considered for aBuyer who does not comply with allof the credit requirements or does not
comply with the minimum residenceor employment requirements.
Co-Buyers cannot substitute for theBuyer’s ability to pay the obligation,the gross verifiable income of Buyermust meet all income and budgetguidelines on their own.
FIRST TIME BUYERRefer to Lender’s guidelines for FirstTime Buyer credit criteria and budg-et qualifications.
STRAW PURCHASELenders will not consider any buyerwho is purchasing a vehicle for anoth-er individual.
MILITARY BUYERA Military Buyer ranking E-4 andabove is eligible for consideration.Mandatory allotment for the pay-ments. Lender will provide the Dealerwith the necessary allotment form forthe Military Buyer.
Lender’s require the military ID andthe most recent leave and earningsstatement (LES) up front at the timethe credit application is initially sub-mitted for consideration.
ETS date must continue through 50%of loan term.
The following must be included in thepackage, in addition to the normal stips:
1.A completed allotment form, all thepages, less the page military retains.
2.The first monthly payment.(The first monthly payment isrequired because it usually takesabout 45 days for the allotmentdeductions to begin.The Buyer’scheck for the first payment may bepost-dated)
3. Military ID
4. Leave and earnings statement (LES)
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LOAN PROCESS ANDFUNDING
LOAN PROCESSSUBMITTING APPLICATIONSWhen submitting a loan applicationto the lender following items must befaxed or electronically transmitted:
• Cover Letter
• Complete and signed CreditApplication
• Retail Installment Sale Contract orDeal Structure
• New Car Invoice with Due Bill, or
• Complete Book Out Sheet (KellyWholesale Blue Book)
• Trade-in Book Out Sheet (ifapplicable)
• Credit Report Copy
• Copy of the Pay Stub(s)
• Agreement to Furnish Insurance
• Notice to Co-Signer (if applicable)
Upon receipt of application, Lenderwill run credit reports and considerthe application based on the followingto determine the credit worthinessand loan structure.
• Credit Score/Credit History
• Advance Ratio
• Down Payment
• Residence/Employment
• Income
• Debt Ratio / Payment to GrossRatio
If the loan structure and the buyercomply with the Lender’s buyingguidelines, in general the lender willapprove the application for structureand start the verification process.
LENDER VERIFICATIONSLender will verify;
• Down Payment
• Income
• Employment
• Residence
• Insurance
• Credit
• References
Prior to funding, Lenders also con-duct a Pre-funding interview with theBuyer to verify the information con-tained in the application and the con-tract.This verification process must besatisfactory to get an approval.
REQUIRED DOCUMENTSThe required documents – stipula-tions – for nonprime lenders to beincluded in the package:
• Drivers License – Copy of a validdriver’s license for each buyer.Driver license from a different stateis acceptable, as long as insurance isverified.
• Proof of Vehicle Insurance -Insurance policy or binder asevidence and signed Agreement toProvide Insurance Form.
• Proof of Income – All incomemust be verified and requiresspecific proof based on thefollowing categories:W-2Employees (Current pay stub withYTD earnings), Military Personnel(LES) and SelfEmployed/Unearned Income(1099).
• Proof of Residence – Mailaddressed to buyer, such as a
current household bill (phone,electric, gas, water), or statement(bank statement).
• Proof of Rent/Mortgage paymentamount – Mortgage statement orrental agreement with landlord’sname and phone number.
• Telephone Bill – Current andcomplete telephone bill.
• Personal References – List ofpersonal references including fullname, home address, city, state, zipcode, and home telephonenumber.
• Co-Signer Acknowledgment Form- If co-buyer is other than spouse,signed Co-SignerAcknowledgment Form.
Lenders may require additional docu-mentation.
FUNDINGFor dealerships and lenders to make aprofit, time is money. Quick approvalsand funding enable everyone to getpaid sooner, and improve the dealer-ship’s cash flow.
Because nonprime lenders purchasemarginal credit applications, they relyon the verification of documents tobalance derogatory credit.
FUNDING PROCESSOnce a loan is approved, the dealershipmust compile and send a completeloan package to the lender for funding.Once the lender verifies that all thedocuments are in order, the funding iswired to the dealership’s account.During this process, careful attention todetail is essential to avoid problemsdown the line. Approvals expire after30 days and all applicants must beemployed at the time of funding.
Step 1Upon receipt of approval, Dealer willpackage and send in complete loandocuments.
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Step 2Lender receives, inputs the informa-tion into its origination system andassigns it to an auditor.
Step 3Auditor makes sure all documents arepresent and completes the process.
Step 4Funding is wired to the dealership’saccount.
Common reasons for loans to bedenied and not funded include theinability to verify income because ofmissing or incorrect proof-of-incomedocumentation; residency or employ-ment not verifying as stated or inabil-ity to reach the employer or landlordfor verification; missing documentsrequested at the time of approval;inability to verify insurance and aninadequate number of references.
DOCUMENTATION CHECKLISTo Lender’s Approval Notification
o Complete and signed Purchaser’sStatement
o Sales Contract with all Dealer andCustomer signatures
o Purchase Order
o New Vehicle: Factory Invoice andall Due Bills
o Used Vehicle: Kelley WholesaleBlue Book
o Trade-In: Kelley Wholesale Blue oCo-Buyer Agreement signed byBuyer and Co-Buyer
o Agreement to Provide Insurancesigned by Buyer
o Odometer Statement
o Copy of Valid Driver’s License
o Proof of Insurance
o Proof of Income, Current pay stubwith YTD earnings
o Military BuyerMilitary IDSigned Allotment formCurrent LESFirst PaymentProof of Allotment set-up
o Proof of Residence showingcustomer’s name and current address
o Mortgage Statement or RentalAgreement and Landlord information
o Complete Telephone Bill
o Valid Driver’s License
o Complete Reference List
o Other Stipulations required forApproval
IF APPLICABLEo Copy of Extended Service
Contract
o Copy of Credit Insurance Policy
o Copy of GAP Protection Program
o Copy of any other Products Sold
SPECIAL FINANCE
SPECIAL FINANCEDEPARTMENTAs profit margins thin as the automo-tive business becomes more competi-tive – and complex – dealers are scur-rying for anything that will enablethem to sell more cars, minimizecosts, develop additional profit centersand offer finance options that willmeet consumer demands today and inthe coming years.
Change is a precursor of advancementand growth.That’s particularly true inthe automobile industry, which isevolving at a tremendous pace. Theadvent of such new technologies aseContracting and other paperless pro-cessing systems cuts down on contractsin transit, improving dealership cashflow and, ultimately, the bottom line.For the consumer, this is the goldenage of choices – not only in the myri-ad of products that have flooded themarket – and there are more to come,but in financing options, and the com-panies that offer them. These choiceshave trickled down to the nonprimemarket in a major way.
Dealers are aware of the new consumertrends, and have taken action by becom-ing more accommodating and flexible totheir customer base. The days of thestereotypical high-pressure sales approachis becoming a dinosaur and is beingreplaced by CSI, which has become acatalyst for change – anything to give onedealership an edge over another.
To maintain a competitive advantage,dealers are searching for creative waysto establish new profit centers. Intoday’s aggressive economy, the needfor special finance departments is glar-ingly apparent.This shows that today,Special Finance is alive and well andthe number of nonprime consumerscontinuing to increase at record levels.
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Finance companies want good dealerswho are willing to structure loans thatwill perform to their guidelines andhave good quality vehicles that meetthe finance company criteria.
Dealers know that excellent creditgives the consumer a negotiatingadvantage.A car buyer with outstand-ing credit can command better inter-est rates, and in general drive a harderbargain. It’s all about the power ofmoney.
The balance of power shifts dramati-cally to the dealership when dealingwith a customer possessing nonprimecredit. That customer’s credit optionsare limited, but not his choice of deal-erships. Dealers with poor past histo-ries are finding it difficult to sign upnew lenders and today dealers insistthat special finance customers betreated properly and have gone togreat lengths to make special financedepartments more user-friendly. Fraudand misrepresentation is an area deal-ers are monitoring closely.
It is a very exciting time for SpecialFinance. As long as deals are structuredproperly, stipulations are collected andthe paperwork process is in order, deal-erships and lenders can prosper beyondprime in both gross profit and retail sales.
HOW TO SET-UP ASUCCESSFUL SPECIALFINANCE DEPARTMENTThere are 5 leading principles neces-sary for success in setting-up a SpecialFinance Department. Putting it alltogether will set the dealership apartfrom it’s competition.
1. Qualified Special Finance Personnel
2.Advertising/Marketing
3. Inventory
4. Lender Relationships
5. Organization/Effective Sales Procedures
1. QUALIFIED SPECIALFINANCE PERSONNELEssential to success is the quality ofthe management and sales staff withinthe dealership. First step to ensure asuccessful Special FinanceDepartment would be to find and hirea dedicated and qualified staff. SpecialFinance Department should consist ofthe following:
Special Finance DirectorSpecial Finance Director is the key tothe whole operation. Start out thedepartment with the best qualifiedperson for this position. SpecialFinance Director’s primary responsi-bilities would be lender relations,securing approvals and ensuring time-ly funding.They would also train andsupervise the staff and help with dealstructuring.
Special Finance ManagerSpecial finance Manager would over-see the sales staff, help select the vehi-cles, structure deals to obtain approvalsand contract the customer. Theywould be responsible from closing thedeals by maximizing both front andback end profit.
Special Finance SalesRepresentative(s)Special Finance Sales Representativesare responsible for taking care ofphone/ direct mail/ walk-in leads,setting-up appointments, knowing theinventory and advertising, going on atest drive, collecting stipulations andfollowing-up with customers.
There should be enough SalesRepresentatives in the department tohandle all the leads efficiently, onesales representative for every 100monthly leads would be good rule.Compensation of the sales representa-tives goes a long way in becoming asuccessful department.They should begiven the same bonuses as any other
salesperson in the dealership, however,the best compensation plans are theones where the same commission isgiven to both the front and back endprofits of a completed deal.
Dealership’s sales management, financemanagement and the sales staff shouldbe familiar with the entire specialfinance operation. Cross training tosome extent must occur in almostevery aspect.This opens up the dealer-ship to internal promotions withinSpecial Finance Departments with nodowntime lost due to the fact thatthere was someone qualified immedi-ately available to fill that open position.
2.ADVERTISING / MARKETINGMarketing includes different activitiesto promote the dealership throughcontinued advertising, promotionsand sales.Good marketing and an ade-quately budgeted advertising cam-paign is necessary to attract customersto a dealership.
The advertising campaign shouldconsistently generate and capture ahigh quality of leads and measureresults. Based on measuring differentadvertising results three to six hun-dred dollars per deal for specialfinance advertising seems to be themost effective amount to budget. Bydistributing advertising costs to eachdeal, the dealership would have anadvertising budget built in withoutincurring out-of-pocket expenses.
There are various sources of adver-tising and getting leads for theSpecial Finance Department; such as,direct mail, Internet, billboards, printmedia, radio, TV commercials andinfomercials. Through any one ofthese sources, special finance depart-ment can be advertised and promot-ed enough to get the message acrossthat people with credit challengescan be helped, but the majority of
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